Q1 2022 Warrior Met Coal Inc Earnings Call
Good afternoon, My name is Rocco and I will be conference operator today.
At this time I would like to welcome everyone to the warrior met coal first quarter 2022 financial results Conference call.
All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and answer session. If you'd like to ask a question. During this time simply press Star then the number one on your telephone keypad.
To withdraw your question. Please press Star then two.
This call is being recorded and will be available for replay on the company's website.
Before we begin I've been asked to note that today's discussion may contain forward looking statements and actual results may differ materially from those discussed for more information regarding forward looking statements. Please refer to the company's press release and SEC filings.
I've also been asked to note that the company has posted reconciliations of the non-GAAP financial measures discussed during this call in the tables accompanying the company's earnings press release located on the investors section of the company's website at Www Dot warrior met coal Dot com.
In addition to the earnings release the company was supposed to have a brief supplemental slide presentation to the investors section of its website at www Dot warrior met coal Dot com.
Here today to discuss the company's results are Mr. Walsh, our Chief Executive Officer, and Mr. Dale Boyles, Chief Financial Officer, Mr. Sellers, you may begin to earmark Sir.
Thanks, Operator, Hello, everyone and thank you for taking the time to join US today to discuss our first quarter 2022 results.
After my remarks, Dale will review our results in additional detail and then you'll have the opportunity to ask questions.
We were pleased to deliver our second consecutive quarter of record quarterly earnings in over three years on the back of strong customer demand.
The global supply of met coal remain tight during the first quarter, even with China continuing to reduce its steel production.
We're well positioned to continue meeting our customer commitments, even in the face of potential global economic volatility in the future.
Demand for premium met coals were strong throughout the first quarter due to sustained steel production and due to restocking by customers.
We also experienced a short term surge in demand due to panic buying associated with the Russian invasion of Ukraine.
The Russian buyers searching for alternative coals in an already tight market push prices into uncharted territory.
But that was largely responsible for making this past quarter. The most volatile pricing period in recent history.
However, the spike in pricing was short lived as we saw all major indices give back a substantial portion of the gains brought on by the war.
Our primary index the P. L D F O B, Australia started the quarter at $357 per metric ton and climbed by over $313 per metric ton to its peak of $671 per metric ton on March 14th well.
While closing the quarter at $515 per metric ton and.
In addition to strong demand supply shortages continued to be a problem Bureau mix of weather related issues in Australia and logistical constraints in North America.
As previously mentioned the Russian invasion of Ukraine, only exacerbated the already tight market conditions.
We were expecting Chinese buyers to initiate purchases of imported coals from the U S. Following the Olympic games. However, they remain mostly on the sidelines for the entire quarter.
Only a few transactions between North American suppliers and Chinese customers were completed in the very early days of the quarter.
With lower steel production for most of the quarter the Chinese steel mills, we're able to manage with strong domestic coal production and imported land borne coal from Mongolia.
Be it lower than historical levels.
Well, it's a residual Australian coal in the bonded warehouses.
The World Steel Association recently reported that global pig iron production decreased by eight 8% in the first three months of 2022.
China recorded a decrease in production of 11% for the period, while the rest of the world's pig iron production decreased by four 3%.
China's lower steel production is largely due to measures put in place for the Olympics.
As well as the recent shutdowns related to Covid restrictions.
While lower steel production volumes and the rest of the world where due to the ongoing supply chain issues overall steel demand remains solid despite the lower volumes compared to the previous year.
As for Warrior, our sales volume in the first quarter. This year was $1 1 million short tons compared to 2 million short tons in the same quarter last year.
This quarter was lower than last year, primarily due to the ongoing labor strike lowering total production volume.
Plus approximately 100000 tons that slipped into the second quarter due to shipping delays at the port.
Rajiv maintenance and congestion in the first half of the quarter delayed some shipments into March.
The mechanical failure of the ship loader in the last few weeks of the quarter laid our final vessel loadings, which caused the volume slippage in the second quarter.
These issues resulted in a 54% of our sales volume shipping in March backend loading our quarter sales volume and occurring higher demurrage costs of nearly $3 million.
In addition, although not a significant was the poor performance of our rail transportation provider and getting our product to the port in a timely manner.
We believe these delays reduced our first quarter adjusted EBITDA by approximately $40 million net income by $32 million and EPS by <unk> 63.
Our sales by geography in the first quarter were 66% into Europe , 13% into South America, and 21% into Asia.
We did not show any volume into China during the fourth quarter as the CFO , China Index price was below the Australian F O B price.
Higher quarter, except for three days in early January .
Our spot sales in the first quarter were approximately 15%.
Production volume in the first quarter. This year was 1.5 million short tons compared to $2 2 million short tons in the same quarter of last year.
The tons produced in the first quarter resulted from running both long walls and five continuous miner units at mine seven.
And two continuous miner unit and the longwall mine for.
Our lead days on the longwall did not materially change during the quarter and remains solid.
The mines ran well and very efficiently in the first quarter as we ramped up production at mine four to about 50% of its nameplate capacity of 1 million tonnes.
We finished the quarter running the minds of the combination of salaried and hourly employees, representing approximately 50% of the normal workforce, while producing approximately 75% of the normal production volume.
Capital spending in mine development in the first quarter this year was $20 million.
<unk> is on target for the full year, including the work on our four north portal, which we expect to be completed early next year.
On that note in light of the company's current free cash flow generation and our philosophy to invest in our core business. Our board recently approved the purchase of two new sets of longwall shields for the existing mines.
This represents another significant investment of approximately $100 million to keep our minds, well capitalized and performing most efficiently.
We expect to make down payments this year, which is reflected in our annual guidance and final deliveries expected to be in the third quarter of 2023.
Before I ask be able to address our first quarter results in greater detail I wanted to take a moment to comment on the exciting and important announcements. We made earlier this week, specifically, we announced the relaunch of the development of our Blue Creek reserves.
Our decision to accelerate stockholder returns with special cash dividends with the first dividend of 50 cents per share.
And an update on our approach to capital allocation.
I'll start by discussing our capital allocation approach since it provides the umbrella framework for understanding how we think about our short and long term stockholder value creation.
And also explains why our board decided to unlock the value of Blue Creek and enhanced stockholder returns of special cash dividends. In addition to our regular quarterly dividends.
First let us look at where we are from a cash and operating perspective, we are much stronger cash position today than we were two years ago, having generated significant free cash flow over the last two years.
Based upon the current industry outlook for higher met coal pricing in the near term, we will continue to generate significant amounts of free cash flow in the future.
Second we've demonstrated our ability to operate as a low cost low leverage company with strong liquidity to maintain flexibility through market cycles and volatility in the met coal market.
This approach has enabled us to continue operating successfully over the past few years despite significant headwinds.
That will not change regardless of macro pricing, where our cash position.
Third at this point, we built up the necessary liquidity to allow us to put our capital to work both of them, making prudent investments in our business and returning cash to stockholders.
In summary, while we're following the same long standing capital allocation principles as we always have our cash balance and free cash flow generation give us additional flexibility and scale.
I will have more to say about our capital allocation in a moment.
For now let me tell you that every moment him warriors extremely excited about the potential Blue Creek to transform the company.
We're enthusiastic about the opportunity to build on a strong track record of creating value for stockholders with this project.
Importantly, the Tommy for Relaunching. This project is ideal.
We believe that the demand for premium high vol. A coals will continue to increase due to their unique blending attributes.
While the overall supply of premium coals will remain constrained due to declining production and a lack of new projects.
Which is support strong pricing fundamentals and the future.
Blue creek's tier one high vol, a quality and a lack of tier one projects in the United States suggest considerable demand for our product.
Another attractive feature of this new mines, we expect production cost to be in the first quartile of the global seaborne cost curve.
We believe the combination of these factors will generate some of the highest met coal margins in the U S.
Once fully developed Blue Creek is expected to expand our product portfolio to our global customers by offering three premium hard coking coals that are expected to achieve the highest premium met coal prices in the seaborne markets.
The new single Longwall mine Blue Creek is expected to produce an average of $4 8 million short tons per year of premium high vol. A met coal.
Once we have developed a Blue Creek, we expect its new mine could increase our annual production nameplate capacity to nearly 13 million short tons per year, resulting in an annual production growth rate of 60%.
We control approximately 70 million short tons of reserves and 49 million short tons of resources at Blue Creek, which totals 119 million short tons.
Based on the current schedule, we expect the first development tons from continuous miner units to occur in the third quarter of 2024 with the longwall scheduled start up in the second quarter of 2026.
All of this detail and much more can be found in a slide presentation on the IR section of our website.
As I mentioned Blue Creek represents a transformational opportunity for warrior we.
We could not be more excited to start this project and look forward to seeing the fruits of our investment once the development is completed.
I'll now be able to address our first quarter results in greater detail provide some additional metrics around our capital allocation strategy and provide additional information on how we are approaching the financing for Blue Creek.
Thanks Walt.
Before I go into detail about the quarter I want to address how we're thinking about capital allocation. While we move ahead with the Blue Creek project.
Given our strong liquidity position now with the appropriate time to provide additional context to our thinking.
In the press release, we issued on May 3rd we laid out our current policy in regard to capital allocation, which focuses on our ability to fund the operations regardless of the volatility in the met coal market.
Besting in highly accretive growth opportunities such as Blue Creek.
And leveraging our free cash flow to return cash to stockholders through special cash dividends or stock repurchases.
More specifically.
There are certain key metrics that we're focusing on achieving as we make those capital allocation decisions, including through the development of Blue Creek.
They include.
First maintaining a higher amount of minimum total liquidity of $250 million, including a minimum cash balance of $150 million.
Second staying one and a half to two times levered.
And third balancing the value of our Nols with stock repurchases, which could jeopardize does your Nols.
We believe strongly that our capital allocation policy and our key metric guidelines provide the right approach.
They bounce capital investments for medium to long term growth with near term returns to our stockholders.
Turning now to Blue Creek.
And determining to move forward with the project, we compared the Blue Creek potential try investment criteria.
The Blue Creek is one of the rare and large scale tier one assets in the country. We expect the project to deliver an attractive internal rate of return on our investment of approximately 30%.
As we think about how best to account for the $650 million to $700 million investment.
We'll be opportunistic in evaluating funding alternatives beyond our free cash flow.
If they are financially prudent opportunities to tap external financial resources, we will look to do so.
We're pleased that our strong base of operations has enabled us to take this flexible approach.
However, we expect to generate enough free cash flow during the five year construction period to pay for the project entirely in cash pay special dividends, when we purchase stock and retiring debt early.
Much as two years.
At that point, we expect the company will be debt free all producing approximate 13 million short tons per year.
And considering the timing of the development of Blue Creek.
And the required investment.
There are several internal and external factors that influence our decision to move forward with the project now despite the inflation you're currently experiencing.
First we refinanced our debt in the fourth quarter last year and pushed out the maturity until late 2028.
Beyond the start of the Blue Creek Longwall in 2026.
Second our cash and liquidity has significantly increased since we originally announced our intention with Blue Creek in early 2020.
Including an additional $241 million of cash and an additional $247 million of total liquidity on our balance sheet.
Third the strength of both current market conditions and high prices should allow the company generate strong free cash flow. This year further reducing the funding the rest of the project.
Four.
It sounds like the project timeline by 15 months also bring production online sooner, thereby increasing profitability and free cash flows in the next five years.
Two years before the maturity of our senior notes.
Fifth financing options still remain available if needed to maintain an efficient and low cost capital structure.
And finally in addition to these factors we expect to generate strong free cash flows over the five year construction period that will provide further liquidity the balance both the development of Blue Creek and make additional cash returns to stockholders.
These factors combined with the Bayou that Blue Creek can deliver to our stockholders give us confidence in the success of the project.
With that I will turn to the first quarter results.
So the first quarter of 2022, the company recorded a second consecutive quarter of record quarterly results of net income on a GAAP basis of $146 million or $2.83 per diluted share.
Compared to a net loss of $21 million or <unk> 42 per diluted share in the same quarter last year.
non-GAAP adjusted net income for the first quarter, excluding the nonrecurring business interruption expenses I don't mind expenses and other income.
With $2 97 per diluted share compared to an adjusted net income of eight cents per diluted share in the same quarter last year.
Adjusted EBITDA was $244 million in the first quarter of this year. Another all time record high for a quarter as compared to $47 million in the same quarter last year.
The quarterly increase was primarily driven by a 220% increase in average net selling prices.
Partially offset by a 42% decrease in sales volume.
Our adjusted EBITDA margin of 64% in the first quarter this year compared to 22% in the same quarter last year.
We believe the financial impact of the shipping delays that Walt previously noted.
Due to the first quarter sales volume by 100000 short tons adjusted EBITDA by approximately $40 million net income by $32 million and E. P. S by 63 per share.
The impact of the delays was magnified by the current high pricing environment.
Total revenues were $379 million in the first quarter compared to $214 million in the same quarter last year.
77% increase was primarily due to the 220% increase in average net selling prices.
Partially offset by 42% lower sales volumes in the first quarter versus the same period last year.
In addition, other revenues were positively impacted in the first quarter. This year by 87% increase in our natural gas prices.
All set by noncash mark to market loss on our gas hedges of approximately $13 million.
This mark to market hedge loss is attributed to hedge is put into place prior to the war in Ukraine, which has triggered a run up in natural gas prices recently.
Our gas operations are generating strong results just not as much as they could be due to the hedges.
The Platts premium low vol, Fob Australian index price averaged $361 per metric ton higher and was up 284% in the first quarter. This year compared to the same quarter last year.
The index price averaged $488 per metric ton for the first quarter.
The mortgage and other charges reduced our gross price realization to an average net selling price of $339 per short ton in the first quarter this year compared to $106 per short ton in the same quarter last year.
The merger charges were approximately $3 million higher than the first quarter. This year versus last year, primarily due to the port delay issues that Walt discussed earlier in his comments.
Cash cost of sales was $134 million or 35% of mining revenues in the first quarter compared to $154 million or 74% of mining revenues in the same quarter last year.
The decrease in total dollars was primarily due to a $65 million impact of 42% lower sales volume.
Partially offset by $45 million of higher variable costs associated with price sensitive wages transportation and royalty cost.
In addition, our costs were higher due to inflation increases on belt structure revolts cable magnetite rock dust and other materials and equipment.
Despite the higher variable cost inflation cash margins with $220 per short ton in the first quarter compared to only $27 per short ton in the same period last year demonstrating.
Demonstrating the leverage to higher met coal prices driving both profitability and free cash flow.
Cash cost of sales per short ton Fob port.
It was approximately $119 in the first quarter compared to $79 in the same quarter last year.
Transportation and royalty cost accounted for $32 of the increase plus an increase in production costs due to rising inflation of approximately $3 per short ton.
Cash costs on price sensitive items, such as wages transportation and royalties that variable met coal pricing were significantly higher in the first quarter of this year compared to the same quarter last year.
As you May remember transportation cost lag on a one quarter basis and index prices averaged $361 higher in the first quarter versus the same quarter last year.
As a result of the significantly higher prices period over period variable transportation and royalty costs are significantly larger components of the cost per ton.
In the normal approximately one third percentage.
Variable transportation and royalty costs were 46% of the cost per ton of $119 in the first quarter of this year.
Compared to only 29% in the same quarter last year.
Driven primarily by higher met coal pricing.
Its coal prices stay at or near these all time highs, we expect our transportation and royalty cost to be a higher percentage of our total cash cost in the coming quarters.
SG&A expenses were about $14 million or three 7% of total revenues in the first quarter. This year and were higher than the same quarter last year.
Similarly, due to higher stock compensation expense due to retirement eligible employee equity grants and a 60% higher stock price.
During the first quarter, we incurred incremental nonrecurring business interruption expenses of $7 million that were directly related to the ongoing labor strike.
These nonrecurring expenses were primarily for incremental safety and security legal and labor negotiations and.
And other expenses.
<unk> expenses were $3 million in the first quarter and represent expenses incurred with the operations at both mines running at reduced capacities, such as electricity insurance maintenance labor taxes and.
Primarily fixed in nature.
Turning to cash flow.
During the first quarter. This year, we generate $50 million of free cash flow, which resulted from cash flows provided by operating activities of $70 million less cash used for capital expenditures and mine development cost of $20 million.
This resulted in free cash flow conversion of 20% this quarter.
Versus last year's first quarter, 50%.
Free cash flow in the first quarter of this year was negatively impacted by 159.
Million dollar increase in net working capital from the fourth quarter of 2021.
The increase in net working capital was primarily due to an increase in accounts receivable on higher met coal pricing.
Bind with lower sales volumes, which increased our inventories due to the shipping delays previously noted.
Our total available liquidity at the end of the first quarter was $557 million, representing an increase of $78 million or 16% over the fourth quarter of 2021.
Consisted of cash and cash equivalents of $434 million and $123 million available under our ABL facility.
This is net of outstanding letters of credit of approximately $9 million.
Now turning to our outlook and guidance for 2022.
We believe we are well positioned to fulfill anticipate customer commitments for 2022.
In the current operating environment and without a new labor contract.
We believe that we'll be able to meet our production and sales volumes, including the outlook section of our earnings release.
The volumes out lot include the restart a mine for at about 50% of capacity and running mindset them at lower operating rates.
Normal production.
I'll now turn it back to Walt for his final comments.
Thanks Dale.
Before we move on to Q&A I'd like to make some final comments on our outlook for the second quarter and full year of 2022.
As Joe noted earlier in his remarks, our cash cost per short ton in the first quarter of 2022 was significantly higher due to the variable components of our cost structure, such as wages transportation and royalties.
The impact of inflation.
We expect this trend of higher transportation and royalty cost to continue into the coming quarters until prices normalized back to historical levels.
Another factor that may negatively impact our cash costs as the impact of rising inflation as we noted earlier.
U S inflation in March hit its fastest pace in four decades as pandemic related supply and demand imbalances, along with stimulus measures intended to shore up the economy pushed the consumer price index up to an eight 5% annual rate a 40 year high.
As we stated last quarter, we're expecting anywhere from 10% to 25% increases in steel prices trade rates labor and other materials and supplies this year.
As Dan noted earlier, we incurred approximately $3 per short ton of higher inflation during the first quarter. This year.
These inflationary increases effect among other things the cost of bell structure roof bolts cable magnetite rocked us.
The machinery and equipment purchases.
The first few weeks of the current quarter have brought renewed strength in the macro indices.
Additional sanctions and outright bans of Russian closer, making it difficult for certain customers to continue purchasing from Russian coal suppliers.
We do expect some geographies, such as India, and China to continue buying Russian calls for the time being.
But the recent rise in the indices is expected to be reversed as the risk of global economic downturn remains high due to inflationary pressures and high energy cost.
In addition, we expect supply from Australia to be stronger beginning in the second half of the year.
As a result, we expect the combination of lower demand and improved supply to provide pricing relief to purchasing managers.
However, we still expect pricing to remain above cost curve economics as a result of the trade disruptions caused by the war in Ukraine.
With that we'd like to open the call for questions operator.
Thank you at this time I would like to remind everyone to ask a question. Please press Star then the number one on your telephone keypad, we will pause for just a moment to compile the Q&A roster.
Today's first question comes from David Gagliano with BMO capital markets. Please go ahead.
Alright, thanks for taking my questions.
I have a few I'll try and keep them tied though on the on the first of all on the near term basis just.
On the timing of the inventory unwind, yeah, obviously, the guide unchanged for the year on sales.
The midpoint implies a 1.6 million tons on average of sales volumes per quarter I think.
And the next few quarters pretty significant increase.
Is it reasonable to assume that sort of spread evenly over the next few quarters or is how should we.
Think about that piece.
Thanks for the question David This is Walt.
I would expect it to be more back half loaded I think the second quarter, we will continue to see some issues at the port where they are working on one of the car dumps. So I expect the second quarter to to not quite be as well.
As strong as the third and fourth quarter will be so I think it will be a little more back half loaded.
Okay. Okay fair enough and then just in terms of switching gears to the shareholder returns a piece of this and the balancing between that and funding Blue Creek.
Is the plan to build up enough cash near term to fund Blue Creek, essentially upfront and then start returning cash to shareholders or do you plan to you know.
Fund Blue Creek more closely with the timing of the Capex.
Schedule that was provided in the slide deck the other day.
And then return cash more upfront if that makes sense.
Yeah. Thanks, David This is Dale.
No I would say we would continue to do the shareholder returns over time of the project.
We think we can do that.
Obviously, we are building more cash given that prices have stayed higher longer than I think anybody anticipated.
But heading into next year, if you looked at the presentation, we spend two thirds of the capital and 23% and 24.
We're going to stockpile, a little more cash, but given where the markets are and the cash that we're generating.
We believe we could do one or multiple.
The dividend.
In the coming year or two.
Okay and so just.
It's a try.
Drill down a little bit more on that answer would you want to have it like that.
I do have the Capex timing on Blue Creek, and that's very helpful. And so is it reasonable to assume that you'd want to have.
The cash on the balance sheet before the Capex, you know what I'm, saying like.
500 million Bucks of Capex tied to Blue Creek before you would return cash to shareholders or.
Is that not how to think about it.
No. We just said look the minimum because we can't predict what the obviously the markets will do and whether or not there's any demand destruction for mall.
The things that are going on in the markets today I mean.
So we haven't set a target of where we will start returning cash.
To shareholders something targeted cash balance other than a minimum.
As I said in my comments look.
Over that five year period, you're going to have peaks and valleys with met coal pricing.
And while the construction projects going on we want a minimum of $150 million of cash at all times.
But yes, you can expect it to be higher than that so that we can fund the project.
We didn't want to go into the year drain all of our cash and returns and then you don't have the cash if the market turns on you.
To fund that year, So we think given the ability to stockpile, a little cashier and do both well.
Accomplish both objectives.
Okay. That's helpful I'll turn it over somebody else. Thanks.
Ladies and gentlemen, as a reminder, if you'd like to ask a question. Please press Star then one today's next question comes from Lucas pipes of B Riley.
Please go ahead.
Thank you very much and thanks for taking my questions.
I first wanted to touch on the Nols could you remind us what the remaining balances and in an environment like today when prices are so so so silver Boston you generate a lot of <unk>.
Taxable income how how will this affect this balance over the course of this year. Thank you. Thank you very much for that update.
Thank you Lucas Thanks for the question Dale.
Yes coming into the year, we had almost $800 million of federal Nols, and then almost $1 billion in state Nols.
So yes, we came in to this year.
With a lot of those remaining and given where we are generating a lot of cash and a lot of profitability, we're going to use a lot of those Nols this year and just depending on.
How long the prices stay as high as they are we will depend on how fast we use them and so.
This will be a big usage the year no matter what.
So it's kind of hard to predict where we'll be at the end of this coming year, but.
That continues to provide extra cash year for.
Returns to shareholders as well as funding Blue Creek.
Yeah.
Helpful and then.
In terms of the discussion around capital returns historically.
Share repurchases have featured prominently in New York.
Discussions.
Whats that change it you know assuming.
Second quarter is even better than the first given volumes and such and we look at the end of this year and also almost exhausted.
But your repurchases move up in the priority list.
Yes, I'm not sure it would be that early as the second quarter or third quarter I would expect that would probably be from that standpoint stock repurchases probably in next year.
It really depends on how fast we use them up this year.
But at the current pace, obviously, you've gone below through them pretty quick, but we don't expect prices to stay here.
For the remainder of this year, we do think theres going to be.
The correction period is going to be pretty steep as we've seen pretty.
Significant swings even in the last couple of months in fact overnight.
Big swings of 70 to 80 Bucks so.
It can adjust real quickly so yeah, we'll we'll make.
<unk> decision later on but I don't think it's as early as the second or third quarter, and maybe tightened again in a quarter.
Sure.
And then.
When I.
Look at Warriors historical production. There were there were there were periods. When you approached 8 million tons or maybe on an annualized level, where we're higher than that 8 million tons figure how it does.
The guidance today at the midpoint.
What are kind of the key.
Puts and takes are if I compare 6 million to say 8 million tons or so in the past what what what are the what are the.
How would you bridge that.
Is it labor is it.
Where you are in the in the mine plan.
Would appreciate that perspective, and maybe some color as to what and when we could approach the 8 million tonne level short ton level again, thank you very much.
It's a it's entirely or almost entirely labor right now we are.
Getting close to running mine seven.
100% capacity adds.
In mind for when they were running at about 50% capacity.
That bridges that brings you up.
More than another 1 million tonnes. Once you get it back to full capacity and then there's just some that can that get.
The other.
Tom.
We continue to see the workforce row month to month.
And so our expectation is that we will continue to grow.
Production as we go through the year <unk> resolved.
Current labor situation, so that's our expectation.
Patients to continue to grow through one of those two methodologies.
Thank you very much really appreciate the color and best of luck.
Thank you.
Ladies and gentlemen, our next question today.
From David Gagliano of BMO capital markets. Please go ahead.
Alright, well thanks for taking my follow up the question really was actually related to what you just said the hell of a minute ago. We've had so much volatility like you said over 90 of them.
And it's always tricky, you're right trying to pinpoint numbers I know last quarter.
There was there was a move away from speaking about realized pricing relative to benchmarks of the discount that kind of think given the.
The impact that the timing of deliveries has on that that spread.
I was wondering if maybe you could talk about a little bit of a different context.
If if we were to you know here it is may 5th what.
A reasonable assumption for lag timing.
Just generally speaking on average if we look at index pricing, and and and and and and borders realized pricing how far back should we be lagging.
For the current quarter for example.
Typically our pricing is set based on anywhere it depends based on contract, but it's up to about a month.
So it will be averaged in prices from the previous 30 days in order to set our pricing.
Okay, and that's still a reasonable assumption given everything going on in the world today.
It is.
And the only variable to that is spot pricing is done at whatever the days pricing is.
I want to reiterate though what Dale said, because we could easily have a can.
Suitable adjustment in pricing and our rail costs are still going to be reflective of what the previous quarter's pricing was so if you had a significant price adjustment in one quarter. The rail adjustment will not will not necessarily follow very quickly. So you can see.
Hi rail right now.
Hi transportation rates.
For for a quarter beyond that adjusted price.
Okay. That's helpful. Thank you and just in terms of.
Given everything going on in Europe , I know warriors.
It provides you know quite a bit of a lot of the volume into steel mills directly in Europe . I was wondering if you just talk a little bit about.
With the European customer base is saying in terms of their.
Appetite for you know for.
Taking full delivery and and and and you know in any commentary regarding price sensitivity and demand sensitivity.
Actually we see very robust demand out of our customers in Europe and you know.
In fact.
When post for trying to scramble to figure out where they're going to replace the coal that was coming out of Russia.
So we see increased demand.
In Europe from some of those customers and I think everyone is.
Still planning on taking full commitment and full deliveries and we haven't seen any change to that.
Yeah, Dave Lehman.
Got some calls about using our coal with thermal coal.
Yeah, we've had a lot of inquiries over the last couple of months given the situation in Ukraine.
Okay. That's helpful. Thanks again.
Thank you Andrew.
Question today comes from Nathan Martin That's a benchmark company. Please go ahead.
Hey, good afternoon, guys. Congrats on the quarter. Thanks for taking my question.
I think the most most of mine have probably been asked at this point, but maybe I'll come back to you costs, obviously cash cost guidance up a little bit here.
In your prepared comments Dale.
It was roughly 46% was variable costs in the first quarter, if I recall and maybe that was well said that but.
You also commented that you know if prices stay elevated we could probably see an elevated level like that versus normal I think it's 30, maybe 33% of cost related to variable items. So I guess, maybe my question is.
And with this new raise and cash cost guidance, what what kind of price are you guys. Assuming I think previously you said you were assuming a pretty steep fall off as we progressed through the year. How has your view changed there. Thank you.
Well I think you know what we did is try to look and say well, how much and how far would it fall.
Given the prices averaged $488 a metric ton in the first quarter, yeah, they've got dropped pretty.
Dropped pretty far in the next three quarters to average even 400. So yeah, we kind of developed our metrics around upper threes or around that 400 number because.
As Walt said, we're gonna have a core where there was a steep drop in Dan is going to be another quarter before our transportation cost drops.
That's why we got to factor in that one quarter lag.
Okay. So if I understand you correctly youre kind of assuming upper 300, 400 kind of like a full year average and that's incorporated in that new 115 to 125 per short ton guidance.
Yeah, because you know every quarter after that after the first quarter would have to average somewhere to 70, something like that so you'd have to have some pretty big drop off for the rest of the year.
Got it makes sense, that's really all I had left guys I appreciate your time and best of luck.
Alright, Thank you very much.
And gentlemen, this concludes our question and answer session I would like to turn the conference back over to Mr. Sullivan for closing remarks.
Thank you and that concludes today's conference.
Thank you all for participating.
Now disconnect.
You Sir today's conference has now concluded and we thank you all for your participation you may now disconnect your lines and have a wonderful evening.
Okay.